Despite the joint efforts of the National Pension Commission (PenCom) and the National Insurance Commission (NAICOM) to push life annuity business, some Pension Fund Administrators (PFAs) still believe the only way they can sell their programmed withdrawal is by running down annuity.
Section 4 of the Pension Reform Act, 2004 provides that an employee can, on retirement, make withdrawals from his Retirement Savings Account (RSA) in the form of a programmed monthly or quarterly withdrawal based on his life expectancy or life annuity bought from a life insurance company.
Nnamdi Duru reported that the retiring worker can as well withdraw a lump sum from the balance in his RSA provided that the amount left in the account after the withdrawal is enough to fund a life annuity or programmed withdrawal of not less than 50 per cent of his annual remuneration at the date of retirement.
However, effort by life insurers to push the products is usually frustrated by competition, in other words, Pension Fund Administrators (PFAs).
Life annuity, as prescribed by the pension law, is a contract between the annuitant and a life insurer for the payment of a series of agreed amount of money at agreed intervals to the annuitant. The annuitant transfers part or all of the balance in his RSA to the life insurer as consideration for him to receive given amounts over a given period of time at agreed intervals.
Where retiree chooses life annuity, he negotiates with the life insurer based on his RSA balance projected to the date of retirement and gets an Annuity Provisional Agreement from the insurer, which he submits to his PFA.
Within seven days from the receipt of retiree’s application, the PFA seeks approval from PenCom to transfer the agreed premium to the insurer, attaching a copy of the provisional agreement. PenCom is required to forward copies of approval to PFA/PFC and NAICOM and within 7 days of receipt of approval, PFA must instruct PFC to issue cheque for the premium in favour of the insurance company.